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Mutual Funds vs. Annuities


strive4credit
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My CPA believes I can put $16k away without the IRS really questioning anything... the max contribution to the plan is $49k, but there are going to be tests.

when compared to the $5k limit of an IRA - this made more sense. And since contributions are discretionary, I have flexibility...

My CPA even said that I can contribute the $5k max to my IRA and $16k - but I don't want the risk...

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My CPA believes I can put $16k away without the IRS really questioning anything... the max contribution to the plan is $49k, but there are going to be tests.
Okay, thanks for the starting point! I'll look into it...I definitely want to continue to fund retirement even after I pulled the plug on corporate America. I'm giving up a generous pension, a dollar for dollar 401k match on the first 9% of my income, and company matches into FSAs for child care. It was hard to walk away (comfortably numb), but it needed to be done- its no way to live. Time to test the waters! Edited by jq26
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My CPA believes I can put $16k away without the IRS really questioning anything... the max contribution to the plan is $49k, but there are going to be tests.

when compared to the $5k limit of an IRA - this made more sense. And since contributions are discretionary, I have flexibility...

My CPA even said that I can contribute the $5k max to my IRA and $16k - but I don't want the risk...

The key would be to differentiate what is an employer contribution and an employee contribution to your own 401k plan. That would be easier to do if you are an LLC or a corporation making contributions to your plan. If you're a sole-prop, it could create accounting issues.

You may want to look at a SEP-IRA as well, but it would be an issue if you have employees since you'd also have to make required contributions on their behalf.

BTW, getting back to the original question for the thread: you can fund an IRA with an annuity or mutual funds. It's also possible to fund a 401(k) with a group variable annuity... or mutual funds. (Typically these annuities would have sub-accounts similar to mutual funds, but because of all the bundling of all the administration fees, it could be a better deal for certain sized plans - typically under $5 million in assets and a minimum of $50,000+ in annual group contributions.)

Edited by DHK
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Variable annuities, in my opinion are the biggest waste in a tax advantaged account (like a traditional IRA, 401k, SEP). I can construct a decent enough account using ETFs and closed funds.

One of my LLCs "set up" the Solo 401k plan. I like the flexibility of contributions along with the ability to take loans against the plan made sense too. But everyone's situation is different - so you'd want to talk to your tax person.

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Variable annuities, in my opinion are the biggest waste in a tax advantaged account (like a traditional IRA, 401k, SEP). I can construct a decent enough account using ETFs and closed funds.

I can agree with you on that. Some people don't want to, nor have the disposition to learn about those things, so having various portfolios to choose from makes sense for those kinds of folks.

I wish indexed annuities were available for qualified plans. No losses and market-linked gains sounds pretty good for most novice savers.

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  • 9 months later...

It is a year later, a year ago a 10 year treasury was yielding north of 3%. Today 1.7%. So, the Fixed Annuity market has dried up. Why lock up money even with a principal protection option to get 1.5% on your money for 5 years.

The Fed just issued QE3 and interest rates will go even lower over the next year.

I have been using Mortgage REITS both private and publicly traded...the private REITs which have certain income and assets requirements are paying out 7-8% and the public REITs are yielding out 10%-15%.

I also have been using Oil and Natural Gas pipeline stocks, good yields 6-8% and potential for a little price appreciation.

I also have been using UITs as well...short term maturities 1.5 to 2 years, yields out 6-8%.

All good income options.

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